Computer program product for implementing a service contract futures exchange

ABSTRACT

The present invention relates a futures exchange for services contracts. The SerFEx is an electronic market system that enables the exchange of cash (spot and forward) contracts and futures contracts for the delivery of services. Services are traded on the exchange similar to commodities on a prior art commodities exchange. The exchange allows the futures market to determine the right price for services for the producers and consumers of those services. Participants may buy, sell, or leverage services contracts through a variety of order types. The exchange is composed of an electronic infrastructure that has four major components: a front-end facility comprised of licensed authorized intermediaries, an automated bid/ask matching system, a clearinghouse system, and a title management system. The exchange operates twenty-four hours per day and seven days per week with all accounts settled at least once in every twenty-four hours. Participants in the exchange may be producers of services, intermediaries, speculators, and consumers of the services.

CROSS REFERENCES TO RELATED APPLICATIONS

The present application is a divisional of and claims priority fromco-pending U.S. patent application Ser. No. 09/539,132 entitled,“Mechanism and Business Method for Implementing a Service ContractFutures Exchange,” filed Mar. 30, 2000. The present application is alsorelated to co-pending U.S. patent application Ser. No. 09/619,055entitled “System and Method for Implementing a Service Contract FuturesExchange in a Transportation Environment,” filed Jul. 18, 2000. Each ofthe above-identified U.S. patent applications is assigned to theassignee of the present invention. The above-identified applications areincorporated by reference herein in their entireties.

BACKGROUND OF THE INVENTION

The present invention relates to a business method for implementing anexchange of service contracts.

A futures contract is an agreement to buy or sell in the future aspecific quantity of a commodity at a specific price. Most futurescontracts contemplate that actual delivery of the commodity can takeplace to fulfill the contract. However, some futures contracts requirecash settlement in lieu of delivery and most contracts are liquidatedbefore the delivery date. An option on a commodity futures contractgives the buyer of the option the right to convert the option into afutures contract. Futures and options must be executed on a commodityexchange—with very limited exceptions—and through persons and firms whoare registered with the Commodity Futures Trading Commission (CFTC).

Commodity futures or “futures contracts” are highly regulated andgenerally traded only on the floor of a commodity exchange such as theChicago Board of Trade, the Chicago Mercantile Exchange, the New YorkMercantile Exchange, the New York Cotton Exchange, the Kansas City Boardof Trade and the Minneapolis Grain Exchange. Most of the participants inthe futures markets are commercial or institutional users of thecommodities they trade. These users, many of whom are “hedgers,” wantthe value of their assets to increase and they also want to limit, ifpossible, any loss in value. Hedgers may use the commodity markets totake a position, which will reduce the risk of financial loss in theirassets due to a change in price. Farmers hedge against future priceuncertainties. A cotton farmer, for example, will generally sell futurescontracts on a large portion of the cotton crop in order to beguaranteed a minimum selling price prior to harvest. Conversely, acotton mill owner who wants to sell a customer a quantity of cloth fordelivery some months in the future, but does not own enough cotton toproduce the cloth, could hedge by buying enough futures contracts tocover the forward sale of cloth.

The cotton mill owner now has a price for raw material to whichoperating and production costs can be added to arrive at a base pricefor cloth. Quoting such a price before buying the cotton would make himvulnerable to a price rise, but having bought futures in a quantityequivalent to his needs, he has some assurance that a rise in futuresprices would lessen the impact of a rise in the cost of the actualcotton.

-   -   1. Hedging stretches the marketing period. A producer does not        have to wait until his product is ready to market before selling        the product. The futures market permits producers to sell        futures contracts to establish the approximate sale price at any        time between the time an immature product is established and the        time the mature product is ready to market, sometimes four to        six months later. The producer can take advantage of good prices        even though the product is not mature enough for market.    -   2. Hedging protects inventory values. A merchandiser with a        large, unsold inventory can sell futures contracts that will        protect the value of the inventory, even if the price of the        commodity drops.    -   3. Hedging permits forward pricing of products. A manufacturer,        for instance, can determine the cost for a product by buying a        futures contract on raw products, translate that to a price for        a manufactured or finished product, and make forward sales to        buyers at firm prices. Having made the forward sales, the        manufacturer can use its capital to acquire only as much raw        product as may be needed to manufacture the finished products        that will fill its orders.

Other participants are “speculators” who hope to profit from changes inthe price of the futures or option contract. Commodity production andmarketing involves sizable price risks, and risk represents a cost,which affects the value of a commodity. While there is no way toeliminate uncertainty, futures markets provide a competitive way forcommodity producers, merchandisers, processors, and others who may ownthe actual commodity to transfer some price risk to speculators who willwillingly assume such risk in hopes of making a profit. Take the exampleof the cotton farmer mentioned above, there the cotton farmer transfersthe price risks to a speculator. However, a cotton farmer who sells mostbut not all futures contracts for a prospective cotton harvest is both aspeculator and a hedger because the farmer speculates on the futurescontracts being held while hedging on the futures contracts which aresold.

Futures exchanges perform a vital role in a market economy. Because oftheir highly competitive nature, futures exchanges provide threeimportant economic benefits:

-   -   1. With many potential buyers and sellers competing freely,        futures trading is a very efficient means of determining the        price level for a commodity. This is commonly referred to as        price discovery;    -   2. Futures markets permit producers, processors, and users of        commodities, debt instruments, and currency markets a means of        passing the price risks inherent in their businesses to traders        who are willing to assume these risks. In other words,        commercial users of the markets can hedge, which is, to enter        into an equal and opposite transaction in order to reduce the        risk of financial loss due to a change in price and, by doing        so, lower their costs of doing business. This results in a more        efficient marketing system and, ultimately, lower costs for        consumers; and    -   3. Since futures markets are national or worldwide in scope,        they act as a focal point for the collection and dissemination        of statistics and vital market information.

In the days before credit was readily accessible, some stores carriedthe sign, “cash and carry,” meaning: pay your cash and carry away themerchandise you purchased. That, in its simplest form, is the cashmarket. The buyer finds the precise commodity that suits him—perhaps anorange that has ripened to the proper degree—pays his money and becomesthe owner of the merchandise. Technically, cash market trading usuallyoccurs after a predetermined point in the life of a commodity future,for instance, forty-eight hours prior to the delivery date. At thatpoint the futures contract leaves the futures market and automaticallyconverts to a cash contract.

Sometimes, cash markets can be modified and improved to serve aparticular purpose. For example, a person who goes to the newsstand tobuy a magazine may find that it is more convenient to contract with thepublisher for delivery at home. This modification is called a forwardcontract, and such contracts are widely used in many types of business.The buyer and the seller agree today on a description of the productthat will be delivered in satisfaction of the contract. The buyer makespayments as agreed, and the seller will deliver the asset at adesignated site on a specified date. The problem with this arrangementis that the buyer cannot take advantage of price reductions due tosupply and demand pressures.

Futures contracts differ from forward contracts in that the owner of afutures contact may sell any part of the contract prior to the contractbeing executed. An owner of a forward contract must take possession ofthe physical commodity without transferring any right or portion of thephysical commodity prior to execution of the forward contract.Conversely, the owner of a futures contract may sell the contract priorto the date of execution or even sell options on the contract that mayact to leverage the futures contract away from the owner in the future.

In a competitive market system, buyers and sellers determine prices forcommodities through their transactions in the marketplace. The prices atwhich sellers offer to sell their goods and buyers bid to buy them arebased on their best current assessments of the supply and demand for thecommodity.

Usually, no one knows the exact total supply of a commodity. Forexample, in the United States most commodities are produced by manyfirms. Storage and ownership are also fragmented. The total supplyavailable is usually an estimate, as is new production, and inventoryfigures are not precise. In addition, the quality of the commodityfrequently is not known. Thus, contributing to the complexity ofdetermining an appropriate price.

Demand is even more difficult to measure, based as it is on what peoplemay decide they wish to buy. Changing prices may alter consumers'intentions regarding the quantity of a close substitute commodity theywant—or whether they want it at all. The availability of a substitutemay change the demand picture for the original product as well as forthe related one. However, prices for goods in the marketplace play avital role in our economic system and help to efficiently allocatescarce resources.

Price is a rationer; if the price is right, the supply of a commodityshould balance the demand for it—production should match use. If theprice is too high, some who may have planned to use a product may decideto use less, go without, or they may select a substitute for example,they may eat chicken instead of beef. If enough users are priced out ofthe market, the price may turn down which may encourage more use anddiscourage production. If the price is too low, users will depleteexisting supply and a shortage may develop. Subsequently, prices mayrise, which will tend to discourage marginal buying. Should the priceremain relatively high this would likely promote production or attractadditional supply of the good.

Price discovery is the process of arriving at a figure at which oneperson will buy and another will sell a futures contract for a specificexpiration date. In an active futures market, the process of pricediscovery continues from the market's opening until its close. Futuresmarkets, because of low transaction costs and frequent trading,encourage wide participation, lessening the opportunity for control by afew buyers and sellers. Because they are freely and competitivelydetermined, futures prices are generally considered to be superior toadministered prices or prices that are determined privately.

Price discovery for a particular commodity usually occurs between abuyer and a seller of a particular commodity on the floor of a futuresexchange. The floor area of an exchange is divided into pit areas orpits for trading of a particular commodity, e.g. corn, wheat, andcattle. Buyers and sellers of commodities negotiate a price or discovera price in the pit. The trading process is an extremely fast-pacedinteraction between licensed brokers who use hand signals to communicatea price and acceptance to one another. Once a bid price and an ask aprice match the contract price is agreed and price discovery occurs.Futures contracts are usually standardized as to quantity, quality, andlocation so buyers and sellers in the pit only bargain over price.Because of this standardization, commercial interests are better able tocompute local cash prices. This contributes to local market efficiencyand to consistency among markets. In many commodities, futures priceshave earned a role as key reference prices for those who produce,process, and merchandise the commodity. Since cash and futures pricesreflect similar price-affecting factors, their price levels tend to riseor fall together.

Forward prices resulting from forward contracts, on the other hand, arepreset at a predetermined price level and many times that price is quitedifferent from the cash price for a commodity. Because the owner of aforward commodity contract cannot participate in a futures market, theforward contract is exempt from the price discovery process. Therefore,forward prices reflect a certain inefficiency brought about byinaccurate assessments of future supply and demand for a commodity. Thedifference between the forward price and the cash price is referred toas the price basis or basis. The magnitude of the basis is a measure ofthe inefficiency inherent in the particular forward market.

Futures trading is not intended as a way to transfer ownership of theactual commodity, so few traders deliver on futures contracts. Cashmarkets normally provide the most efficient way to exchange ownership ofa commodity; futures markets are a way to forward price the commodityand to lessen the risk of ownership. Studies have concluded that thefutures markets do not “cause” cash market prices to rise or fall. Boththe cash and futures markets respond to the same basic supply and demandfactors. Because futures trading has low transaction costs, participantsare able to actively and immediately express their views on theirestimate of projected likely prices. New information is continuouslyinjected into the market via last sale prices for various futurescontracts. This results in expectations about price movements beingfirst noticed in the organized exchange traded futures markets. On theother hand, the cash market tends to respond to situations in its localgeographic area while the futures market tends to additionally considerbroader national, as well as international implications to events. Butthe regulatory force of arbitrage—which is the simultaneous purchase andsale of identical goods in two markets at different prices to capture ariskless profit—keeps all markets in rough balance. Either price maymove first or furthest.

Forward contracts, on the other hand, represent only a price snap shotin time. Unlike a futures contract, the owner of a forward contract willtake delivery of the commodity on a predetermined date. Forwardcontracts are often negotiated between an institutional seller and abuyer, where the buyer is either the end consumer or a smallercommercial buyer. Once a match occurs between the buyer and seller on aforward contract, that commodity contract is no longer traded in thecommodity exchange. Because of the nontransferable nature of forwardcontracts, their use in commodity markets is somewhat limited. The pricediscovery process is interrupted.

Forward contracts are, however, the primary mechanism for contractingfor future services. Generally, an institutional service seller is theservice producer itself and the buyer is the consumer of the service.The basis for most services often are extremely high, that is, the cashprice is several times higher than the forward price. The cash price fora sporting or entertainment event will often cost twice the forwardprice. Normally the patron will order tickets over the telephone orInternet and pay by credit card. The buyer receives a confirmationnumber or optionally an E-ticket that may be printed from his homecomputer. At the agreed time and delivery point the buyer presents theconfirmation number to the service provider/seller. Usually, the sellercontrols a box office at the venue and the buyer is admitted.

The same supply and demand pressures that cause commodity prices tofluctuate also affect service prices. The seller attempts to determinean optimum price level for the forward contracts. An optimum pricingstrategy might be to adjust the forward contract ask price equal thecost of the service for the seller such that all cash contracts (ticketssold at the door) would represent pure profit to the seller. In that waythe seller is hedging with the forward contracts and speculating withthe cash contracts. This pricing strategy usually requires that theseller set the forward contract price somewhat lower than the rightprice for the service in order to guarantee that the event will breakeven. If the seller raises the forward contract price too high, patronswill seek out alternative entertainment for that date. Alternatively, ifthe forward contract price is set too low, buyers may gobble up all theforward contracts and the seller may have to rely on the cash contractsfor both costs and profit. However, because the forward contracts soldare non-transferable, the seller can be assured that a certain number ofthe forward contracts will not be redeemed. The seller may eitheroversell the forward contracts (overbooking), sell additional cashcontract for the unredeemed forward contracts, or some combination ofboth. It is apparent from the forgoing that no price discovery mechanismexists in a service market and the right price for services is neverdiscovered.

It would be advantageous to provide buyers and sellers of a service witha mechanism for discovering the right price for a service.

BRIEF SUMMARY OF THE INVENTION

The present invention relates to a futures exchange for servicescontracts. The SerFEx is an electronic market system that enables theexchange of cash (spot and forward) contracts and futures contracts forthe delivery of services. Services are traded on the exchange similar tocommodities on a prior art commodities exchange. The exchange allows thefutures market to determine the right price for services for theproducers and consumers of those service. Participants may buy, sell, orleverage services contracts through a variety of order types. Theexchange is composed of electronic infrastructure that has four majorcomponents: a front-end facility comprised of authorized intermediaries,an automated bid/ask matching system, a clearinghouse system, and atitle management system. The exchange operates twenty-four hours per dayand seven days per week with all accounts settled at least once in everytwenty-four hours. Participants in the exchange may be producers ofservices, intermediaries, speculators, and consumers of the services.

BRIEF DESCRIPTION OF THE SEVERAL VIEWS OF THE DRAWINGS

The novel features believed characteristic of the invention are setforth in the appended claims. The invention itself, however, as well asa preferred mode of use, further objectives and advantages thereof, willbest be understood by reference to the following detailed description ofan illustrative embodiment when read in conjunction with theaccompanying drawings, wherein:

FIG. 1 is a pictorial representation of a prior art physical commodityfutures exchange mechanism;

FIG. 2 is a diagram of a distributed data processing system in which thepresent invention may be implemented;

FIG. 3 is a block diagram depicting a data processing system, which maybe implemented as a server;

FIG. 4 is a block diagram illustrates a data processing system in whichthe present invention may be implemented;

FIG. 5 is a pictorial representation of a services commodity futuresexchange (SerFEx) mechanism;

FIG. 6 is a flowchart depicting a method for processing servicescontract futures in accordance with a preferred embodiment of thepresent invention;

FIG. 7 is a flowchart depicting a method for buying a services contractfutures in the SerFEx in accordance with a preferred embodiment of thepresent invention;

FIG. 8 is a flowchart depicting a method for selling a services contractfutures in the SerFEx in accordance with a preferred embodiment of thepresent invention;

FIGS. 9A and 9B are flowcharts depicting a process for selling royaltyescrow services contract futures in the SerFEx in accordance with apreferred embodiment of the present invention;

FIG. 10 is a flowchart depicting a process implementing a conjunctiveservice contract order strategy;

FIG. 11 is a flowchart depicting a process for determining whether aservices contract should be traded in the futures market or the cashmarket; and

FIG. 12 is a flowchart depicting a process for a service providerperforming on a service contract in accordance with a preferredembodiment of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

With reference now to the figures, FIG. 1 is a pictorial representationof a prior art physical commodity futures exchange mechanism. For thepurposes of this discussion the physical commodity futures exchangemechanism includes all aspects related to the trading of physicalcommodity futures contracts. Exchange mechanism 100 includes a structurefor trading the physical commodity here shown as physical commodityfutures exchange 102. Examples of a physical commodity exchange includethe Chicago Board of Trade, the Chicago Mercantile Exchange, the NewYork Mercantile Exchange, the New York Cotton Exchange, and the KansasCity Board of Trade and the Minneapolis Grain Exchange. Physicalcommodity futures exchange 102 comprises several inter-cooperatingsystems for bid matching, exchange of funds and recordation of ownershipfor the physical commodity futures contracts. Normally, order matchingwithin physical commodity futures exchange 102 is a product of an openoutcry bidding process associated with open outcry order matching system104. Once an order is matched, clearinghouse 106 oversees the financialtransaction prior to title management system 108 recording transaction.

Producer 31 originates a physical commodity futures contract byestablishing the precise grade, quantity, delivery date, delivery point,and asking price for the commodity with the authorized intermediary 112.Both buyer intermediary 110 and seller intermediary 112 are registeredwith the Commodity Futures Trading Commission (CFTC)) and maintain aphysical presence within open outcry order matching system 104. Producer31 also escrows title for the futures contract with title managementsystem 108. It is assumed that more sellers' commodity futures contractsare presented for sale within open outcry order matching system 104,such as seller 120. Conceivable however, only single producer's and/orseller's futures contracts may be for sale.

Buyer 122 participates in the exchange by establishing an account withauthorized intermediary 110 and arranging to cover the cost of buyingany futures contracts being bid on. Normally, buyer 122, seller 120 andproducer 31 telecommunicate their respective bid and ask prices torespective authorized intermediaries 110, and 112. Using open outcryorder matching system 104, authorized intermediary 112, asks a price forcommodity futures contracts owned by either seller 120 or producer 31.In return, authorized intermediary 110 bids on commodity futurescontracts based on bidding instructions from buyer 122. Authorizedintermediary 110 and authorized intermediary 112 must maintain aphysical presence in open outcry order matching system 104 withinphysical commodities futures exchange 102 in order to participate in theopen outcry bidding in the pit. Using the prior art order matchingsystem, bids are manually matched on the floor of the exchange and senton to clearinghouse 106.

Every twenty-four hours, at a predetermined time, clearinghouse 106reconciles the day's trading. The function of clearinghouse 106 is tobalance the books between the authorized intermediaries and transfer thenecessary funds to cover the previous day's trading. In a perfectsystem, clearinghouse 106 transfers enough cash (actually clearinghouse106 debits the account of authorized intermediary 110) to cover thephysical commodities futures contracts bought by the clients ofauthorized intermediary 110. Authorized intermediary 112 receives thephysical commodities futures contracts being sold by the clients ofauthorized intermediary 110. However, the rules governing trading withinphysical commodities futures exchange 102 do not necessarily requireseller 120 have title for the physical commodities futures contractsbeing sold. Seller 120 might sell certain physical commodities futurescontracts prior to buying a sufficient number of contracts to cover thesale. In such a scenario, seller 120 must obtain the necessary number ofcontracts prior to clearinghouse 106 reconciling the day's trading. Ifnot, seller 120 must settle the account by transferring the cash priceof the physical commodities futures contracts, which were sold. Seller120 must make every effort to secure the necessary number of contractsto cover the sale because the price extracted from seller 120 might bemuch higher than the selling price.

Once the physical commodities futures contract has been settled, i.e.the funds have been reconciled, clearinghouse 106 indicates to titlemanagement system 108 that a settlement of contract has occurred and itis necessary to change ownership records on the physical commoditiesfutures contract to reflect the settlement. Title management system 108originally receives title for the physical commodities under contractfrom producer 31. After the title has been secured, title managementsystem 108 tracks its rightful owners by updating the ownership recordseach day the title is traded in the futures market. After recordation iscompleted, title management system 108 transfers the name of the newowner to clearinghouse 106 in anticipation of the next day's trading.While it is possible for buyer 122 to take possession of a certificateof title from title management system 108 during futures trading,generally the title record remains only in electronic form untildelivery.

The cash market differs from the futures market in that a physicalcommodities futures contract bought in the cash market is immediatelyreconciled by clearinghouse 106. Subsequent title recordation by titlemanagement system 108 is performed automatically upon receipt ofcontract settlement indication by clearinghouse 106 and recordation oftitle is immediately transmitted back to clearinghouse 106 thereafter. Arecord of the last titleholder is transferred to delivery point 41and/or producer 31, which delivers the physical commodity to deliverypoint 41. Alternatively, producer 31 might deliver the physicalcommodity to an escrow agent at delivery point 41 without knowing theidentity of the last owner of the physical commodity. The final ownermerely presents a certificate of title to the escrow agent who verifiesthe certificate and releases the physical commodity to the bearer of thecertificate. In this scenario the identity of the bearer may never beascertained because the certificate itself may be a transferableinstrument requiring the escrow agent or producer 31 to satisfy thecontract upon demand with the certificate.

One problem with the prior art physical commodities futures exchange 102is that the exchange does not accommodate services, only physicalcommodities. Heretofore, trading of services futures contracts isunknown. The owner of a service must sell the contract as a forwardcontract or a cash contract. Because trading of services futurescontracts was unknown, the right price for a service could never bediscovered. Trading rules concerning prospective service were furtherconstrained by the prior art service allocation mechanisms because theservice providers themselves usually operated the allocation mechanism.Market forces were not allowed to dictate the right price for a servicebecause buyers and sellers could not interact in a services futuresexchange.

Excluding services from futures exchange mechanisms has deleteriouseffects on both the service and the exchange mechanism. Physicalcommodities exchanges have mandated that all commodities are graded suchthat the value of futures contracts might be more accurately valued.Many times governments assume this role but specialized commodityservices have filled gaps where government agencies are absent, fruitand vegetable growers associations for instance, set quality standardsand regulate the application of those standards to the products.Generally, services have no real grading standard, although certainheavily frequented consumer industries do have the beginnings of suchgrading systems. Hotels and restaurants are often rated from one to fivestars based on service quality.

Also, the exchange mechanism itself has not evolved past what isnecessary for trading a limited number of types of commodity futurescontract. While the electronic transfer of contract parameters betweenclients and authorized intermediaries is the norm, physical commodityexchanges have been slow to follow. Generally, prior art physicalcommodities futures exchange utilize an open outcry order matchingsystem for matching bid and ask prices. Even today this is possiblebecause the number of permutations for commodity type, delivery date,grade, and delivery point is very manageable in an open outcry pit. Manycommodities are graded based on historically adopted standards, anddelivery points and ties are dictated by growing regions and seasons.Many services, on the other hand, are quite ubiquitous. Hotel roomfutures contracts, for instance, might be delivered (or more properlyperformed) at virtually any city and on any day. Other services, such asscheduled airline flights between fixed locations might have morelimited delivery points, but performance occurs more frequently thandaily. Still others, such as, a trucking company, may have fixeddelivery points and dates but may be more flexible as to the type ofcontract. There, a carrier may offer a blanket or open contract betweencertain dates from one of its terminals. The contract type might be notspecified by either the buyer or the service provider of the futureuntil the contract enters the cash market. Then, the ultimate consumerof the service buys the service contract and specifies the type.Finally, a services exchange allows a buyer to initiate a servicesfutures contract order in the expectation that a service provider willregister title with the services exchange for a similar service. Thissituation is more like the prior art reverse commodities auction wherebidders initiate the process with a bid and physical commoditiesproducers fill the bid, however, in this case, rather than a commodityor a forward contract, bidding would take place for a services futurescontract.

In an effort to remedy the shortcoming of the prior art, a servicesfutures exchange (SerFEx) is disclosed in accordance with a preferredembodiment of the present invention. Many aspects of the SerFEx wouldoperate similarly to that of prior art physical commodities exchanges.However, the SerFEx is devoted entirely to the exchange of servicecontracts between traders and not physical commodities. The Bureau ofLabor Statistics considers a service to be a bundle of goods and laboractivities provided to a customer to accomplish a given function and theservice must be consumed at the time it is provided. Both the providerof the service and the consumer of the service must agree on the basicgoal of the activity. A partial list of possible services traded on theSerFEx are: construction; transportation and warehousing; postalservices; information; real estate and rental and leasing; financial andinsurance; scientific, and technical services; management of companiesand enterprises; administrative and support and waste management andremediation services; educational services; health care and socialassistance; arts, entertainment, and recreation; accommodation and foodservices; public administration; and other services.

In accordance with a preferred embodiment of the present invention, amechanism for trading in derivatives of the services futures and cashcontracts would also be traded on the exchange. Such derivatives wouldinclude, put and call options on the contracts traded on the exchangeand index options that would be associated with the services contractproducts.

The SerFEx differs from the prior art physical commodities exchangesthat trade during preset trading hours. A preferred embodiment of thepresent invention provides electronic services futures, options and cashcontract transactions on a twenty-four hour per day, seven days per weekbasis. The necessary reliability has been previously achieved by allglobal electronic financial systems that offer twenty-four hour per dayand seven day a week operation with a degree of fault tolerance that isappropriate to maintain a fail-passive or, at minimum, a fail-safeoperation. Threats to the desired reliability include physicalinfrastructure destruction, site-power loss, communications (network)infrastructure failure, hardware failure, software failure, physicalsecurity breach, and cyber-attack, each of which have been sufficientlyaddressed by those of ordinary skill in the art with respect to theprior art systems.

By way of illustration, physical security measures as well as dualfacility designs could handle physical threats. In a dual facilityembodiment, a second facility that is running synchronously in amaster-slave type of arrangement, would be located far enough away fromthe other to mitigate even force majeure threats such as naturaldisasters. The master-slave(s) embodiment may include as many redundancyfeatures as the exchange governing board shall deem necessary. Thus, itmay be necessary to construct several physical sites in as manydifferent countries. The design of the master-slave relationships willalso provide that these relationships may be reversed as the needarises.

Hardware failures could be handled with standard high reliability systemdesign practices such as are found in public safety critical systemslike air traffic control systems. Software reliability could also beachieved with standard practices extant in those same public safetysystems such as multi-channel operational modes with independentlyconstructed and compiled source code that performs identical functions.Software comparator functions would continuously monitor system outputand performance and provide fail-passive or fail-safe market operation.

Network and data security would be achieved by implementing the higheststandards established by the U.S. Department of Commerce agency, theNational Institute of Standards and Technology (N.I.S.T.) for criticalcomputer system security. Such standards can be found in the so-called“Rainbow Books”, originally published by the U.S. National SecurityAgency, but now managed by N.I.S.T.

In accordance with a preferred embodiment of the present invention,hardware and software would be implemented with large-scaleclient/server architectures similar to those depicted in FIGS. 2-4below. The network topology would ideally be an open standard design,thus enabling the use of non-proprietary communications mechanisms likethe Internet, including wireless OSI layer-1 technologies. The databasetechnology would be that which is most appropriate for high-volumetransaction traffic. The front-end client hardware and software would beeverything from interactive text pagers and PDAs to high-end dedicatedworkstation designs. Network connections could be simple messagingprimitives carried over the public infrastructure, dedicated leasedbroadband facilities, on-site terminal connections, or anything betweenthe extremes of these examples.

FIG. 2 is a diagram of a distributed data processing system in which thepresent invention may be implemented. Distributed data processing system200 is a network of computers in which the present invention may beimplemented. Distributed data processing system 200 contains a network202, which is the medium used to provide communications links betweenvarious devices and computers connected together within distributed dataprocessing system 200. Network 202 may include permanent connections,such as wire or fiber optic cables, or temporary connections madethrough telephone connections.

In the depicted example, a server 204 is connected to network 202 alongwith storage unit 206. In addition, clients 208, 210 and 212 also areconnected to network 202. These clients 208, 210 and 212 may be, forexample, personal computers or network computers. For purposes of thisapplication, a network computer is any computer coupled to a network,which receives a program or other application from another computercoupled to the network. In the depicted example, server 204 providesdata, such as boot files, operating system images, and applications toclients 208, 210 and 212. Clients 208, 210 and 212 are clients to server204. Distributed data processing system 200 may include additionalservers, clients, and other devices not shown.

In the depicted example, distributed data processing system 200 is theInternet, with network 202 representing a worldwide collection ofnetworks and gateways that use the TCP/IP suite of protocols tocommunicate with one another. At the heart of the Internet is a backboneof high-speed data communication lines between major nodes or hostcomputers, consisting of thousands of commercial, government, education,and other computer systems that route data and messages. Of course,distributed data processing system 200 also may be implemented as anumber of different types of networks, such as, for example, anintranet, a local area network (LAN), or a wide area network (WAN). FIG.2 is intended as an example and not as an architectural limitation forthe present invention.

Referring to FIG. 3, a block diagram depicting a data processing system,which may be implemented as a server, such as server 204 in FIG. 2, inaccordance with a preferred embodiment of the present invention. Dataprocessing system 300 may be a symmetric multiprocessor (SMP) systemincluding a plurality of processors 302 and 304 connected to system bus306. Alternatively, a single processor system may be employed. Alsoconnected to system bus 306 is memory controller/cache 308, whichprovides an interface to local memory 309. I/O bus bridge 310 isconnected to system bus 306 and provides an interface to I/O bus 312.Memory controller/cache 308 and I/O bus bridge 310 may be integrated asdepicted.

Peripheral component interconnect (PCI) bus bridge 314 connected to I/Obus 312 provides an interface to PCI bus 316. A number of modems may beconnected to PCI bus 316. Typical PCI bus implementations support fourPCI expansion slots or add-in connectors. Communications links tonetwork computers 208, 210 and 212 in FIG. 2 may be provided throughmodem 318 and network adapter 320 connected to PCI local bus 316 throughadd-in boards. Additional PCI bus bridges 322 and 324 provide interfacesfor additional PCI buses 326 and 328, from which additional modems ornetwork adapters may be supported. A memory-mapped graphics adapter 330and hard disk 332 may also be connected to I/O bus 312 as depictedeither directly or indirectly.

Those of ordinary skill in the art will appreciate that the hardwaredepicted in FIG. 3 may vary. For example, other peripheral devices, suchas optical disk drives and the like also may be used in addition to orin place of the hardware depicted. The depicted example is not meant toimply architectural limitations with respect to the present invention.The data processing system depicted in FIG. 3 may be, for example, anIBM RISC/System 6000 system, a product of International BusinessMachines Corporation in Armonk, N.Y., running the Advanced InteractiveExecutive (AIX) operating system.

With reference now to FIG. 4, a block diagram illustrating a dataprocessing system in which the present invention may be implemented.Data processing system 400 is an example of a client computer. Dataprocessing system 400 employs a peripheral component interconnect (PCI)local bus architecture. Although the depicted example employs a PCI bus,other bus architectures, such as Micro Channel and ISA, may be used.Processor 402 and main memory 404 are connected to PCI local bus 406through PCI bridge 408. PCI bridge 408 also may include an integratedmemory controller and cache memory for processor 402. Additionalconnections to PCI local bus 406 may be made through direct componentinterconnection or through add-in boards. In the depicted example, localarea network (LAN) adapter 410, SCSI host bus adapter 412, and expansionbus interface 414 are connected to PCI local bus 406 by direct componentconnection. In contrast, audio adapter 416, graphics adapter 418, andaudio/video adapter 419 are connected to PCI local bus 406 by add-inboards inserted into expansion slots. Expansion bus interface 414provides a connection for a keyboard and mouse adapter 420, modem 422,and additional memory 424. SCSI host bus adapter 412 provides aconnection for hard disk drive 426, tape drive 428, and CD-ROM drive430. Typical PCI local bus implementations support three or four PCIexpansion slots or add-in connectors.

An operating system runs on processor 402 and is used to coordinate andprovide control of various components within data processing system 400in FIG. 4. The operating system may be a commercially availableoperating system such as a UNIX based operating system, AIX forinstance, which is available from International Business MachinesCorporation. “AIX” is a trademark of International Business MachinesCorporation. Other operating systems include OS/2. An object orientedprogramming system, such as Java, may run in conjunction with theoperating system and provide calls to the operating system from Javaprograms or applications executing on data processing system 400. “Java”is a trademark of Sun Microsystems, Inc. Instructions for the operatingsystem, the object-oriented operating system, and applications orprograms are located on storage devices, such as hard disk drive 426,and may be loaded into main memory 404 for execution by processor 402.

Those of ordinary skill in the art will appreciate that the hardware inFIG. 4 may vary depending on the implementation. Other internal hardwareor peripheral devices, such as flash ROM (or equivalent nonvolatilememory) or optical disk drives and the like, may be used in addition toor in place of the hardware depicted in FIG. 4. Also, the processes ofthe present invention may be applied to a multiprocessor data processingsystem.

For example, data processing system 400, if optionally configured as anetwork computer, may not include SCSI host bus adapter 412, hard diskdrive 426, tape drive 428, and CD-ROM 430, as noted by dotted line 432in FIG. 4, denoting optional inclusion. In that case, the computer, tobe properly called a client computer, must include some type of networkcommunication interface, such as LAN adapter 410, modem 422, or thelike. As another example, data processing system 400 may be astand-alone system configured to be bootable without relying on sometype of network communication interface, whether or not data processingsystem 400 comprises some type of network communication interface. As afurther example, data processing system 400 may be a Personal DigitalAssistant (PDA) device which is configured with ROM and/or flash ROM inorder to provide nonvolatile memory for storing operating system filesand/or user-generated data.

Neither the depicted example in FIG. 4 nor the above-described examplesare meant to imply architectural limitations.

By incorporating a wide range of exchange interaction mechanisms into apreferred embodiment of the present invention, maximum possibleautomated intermediation is facilitated, thus permitting directparticipation in the marketplace for quantities of suppliers,speculators, and consumers heretofore unknown in the prior art physicalcommodities futures exchanges. While the intermediation services ofexchange members are deemed necessary for the security and integrity ofthe exchange, human intermediation is reduced to an absolute minimum.Thus, the SerFEx will include only minimum facility for humanintermediation mechanisms such as physical open outcry auction or manualsettlement procedures. Whenever possible, intermediation functions willbe implemented via algorithmically driven automated systems.

Two of the unique challenges associated with offering a futures marketfacility for services, is that storage is impossible, and that manyservices are supplied and demanded in conjunctive arrangements. Theabsolute perishability of services requires the extraordinaryreliability of the exchange that is described above. The conjunctivesituation arises in applications where two or more service contractsmight have a sequential or complimentary relationship.

One example of a conjunctive relationship between contracts would bewhere a consumer would desire to hold transportation contracts formovement of goods from point A to point C on a certain date and time.There may not be any contracts on the market for A to C but there may betwo contracts on the market that together may satisfy the demand. Onewould be for A to B and the other would be for B to C. It is expectedthat the front-end software of the client would have the ability tosearch for contracts that satisfy the constraints of the consumer'sdemand and that it would also be capable of optimizing the selection ofconjunctive contracts within those constraints. This unique conjunctiveproperty of service contracts introduces the opportunity for a new kindof intramarket “spread” speculation, thus perhaps making the operationof the SerFEx particularly attractive to innovative speculators whootherwise could not engage in such a trading strategy on existingcommodities futures exchanges.

FIG. 5 is a pictorial representation of a services commodity futuresexchange (SerFEx) mechanism. For the purposes of this discussion theservices commodity futures exchange mechanism includes all aspectsrelated to the trading of services commodities futures contracts.Exchange mechanism 500 includes a structure for trading a service hereshown as services futures exchange 502 (SerFEx).

Similar to a physical commodity contract, service provider 530 mayoriginate a service futures contract by establishing the precise grade,quantity, delivery date, delivery point, and asking price for theservice with the authorized intermediary 512. Service provider 530 alsoescrows title for the futures contract with title management system 508.It is assumed that other sellers' service futures contracts arepresented for sale simultaneously within bid/order matching system(BAMS) 504, such as seller 520.

In accordance with a preferred embodiment of the present invention abroker/dealer authorized intermediary, such as authorized intermediary510 or authorized intermediary 512 may be any authorized intermediarydesignated by a buyer or seller respectively and licensed by the SerFEx.Authorized intermediaries of different variants fall within the scope ofthe present invention. For example, and authorized intermediary may be a‘commodity pool broker’ that normally conducts institutionaltransactions for large traders such as insurance corporations andpensions funds. A second type of authorized intermediary is an‘introductory broker’ that receive a fee for introducing a buyer andseller. It is expected that an introductory broker would not participatein the negotiation process for buying and selling to the extent of atypical authorized intermediary as the introductory broker merely‘introduces’ buyers and sellers having parallel, although not quitematching, order requirements. Another type of authorized intermediary isa floor broker, which is licensed by the SerFEx but generally trades forhimself. Other types of authorized intermediaries will become apparentto those of ordinary skill in the art during the discussion of theinvention.

BAMS 504 is identical for both the futures and the cash marketmechanisms. A preferred embodiment is an implementation of a price/timepriority algorithm. All participants in the auction will have fullaccess to all bid and ask order information except the identity of theparty submitting the bids. Matched orders on the futures exchange willbe passed to clearinghouse (CH) 506 for mark to market settlement at theappointed time each day. BAMS 504 also includes mechanisms for handlinga wide variety of order types such as market order, limit orders,contingent, contingency, stop, market-if-touched (MIT), alternative andscale orders.

Buyer 522 participates in the exchange by establishing an account withauthorized intermediary 510 and arranging to cover the cost of buyingany futures contracts being bid on. Here, not only does buyer 522,seller 520 and service provider 530 telecommunicate their respective bidand ask prices to respective authorized intermediaries, but authorizedintermediary 500 and authorized intermediary 512 exchange bidselectronically also, rather than using an open outcry order matchingsystem.

Every twenty-four hours, at a predetermined time, CH 506 reconciles theday's trading. The function of CH 506 is identical to that ofclearinghouse 106 depicted in FIG. 1 for supporting a physicalcommodities exchange, that is to balance the books between theauthorized intermediaries and transfer the necessary funds to cover theprevious day's trading. CH 506 in the preferred embodiment of thepresent invention is a wholly owned subsidiary of the SerFEx, howeveroutside financial institutions might be contracted to provide theseservices to the SerFEx 502. CH 506 is the buyer to all sellers and theseller to all buyers. At least once in every twenty-four hours thefutures market is cleared and all accounts reconciled. CH 506 has fullknowledge of the identities of all of the participants on both sides ofall transactions of course, and will be tasked with the fundamentalperformance and consideration aspects of every contract trade. CH 506also establishes opening and settlement prices for each contract foreach trading session and will provide binding arbitration services forexchange transaction disputes between members.

Offsetting futures positions are reconciled by CH 506 at the mark tomarket each day. CH 506 also issues margin calls and has the power toenforce collection when needed. All cash market transactions areimmediately cleared by CH 506. All cleared transactions, whether they becash or open futures positions, have their respective title informationpassed by CH 506 to Title Management System 508.

A feature that distinguishes SerFEx CH 506 from the prior art is theinclusion of a royalty escrow mechanism, which will be discussed in moredetail with respect to FIGS. 9A and 9B below. This mechanism is designedto protect the property rights of service suppliers such as artistic andsporting entertainment providers. Many such services have revenuesharing terms in their present-day forward or cash contracts to ensurethat proceeds are distributed to the parties of the contract at the timeof sale. Contracts traded on SerFEx 502 have the shared revenues placedin an escrow. The methods of the sharing are normally left to the termsof the individual contracts. When the contract transfers to the cashmarket the escrowed funds are distributed in accordance with the termsof the contract. The royalty escrow function allows a secondary marketto operate for services that are subject to anti-scalping laws as theproperty rights of the entities that these laws are designed to protect,would be preserved by SerFEx CH 506.

A preferred embodiment of CH 506 also includes provisions for foreignexchange transactions. Contracts are denominated in the country ofinitiation of the service delivery. If a service contract's delivery issimultaneously carried out in two or more countries that have differentcurrencies, the contract will be denominated in U.S. dollars unless thecontract terms explicitly identifies a preferred currency.

Returning to FIG. 5, once a services futures contract has been settled,CH 506 indicates to title management system (TMS) 508 that a settlementof contract has occurred and it is necessary to change ownership recordsto reflect the sale. Remembering, TMS 508 originally received title forthe physical commodities under contract from service provider 530. Afterthe title for service has been verified, TMS 508 tracks its rightfulowners by updating the ownership recorders each day the title is tradedin the futures market. After recordation is completed, TMS 508 transfersthe name of the new owner to CH 506 in anticipation of the next day'strading.

TMS 508 contains the hardware and software necessary to maintain theuninterrupted owner of record title information for every servicecontract. If a contract is removed from the exchange by issuing acertificate of title, TMS 508 retains a record of title until some dateafter delivery of service that the exchange rules or governmentregulations require. While it is possible for buyer 522 to takepossession of a certificate of title from TMS 508 during futurestrading, generally title is not transferred to seller 522 in the futuresmarket, but is transferred later, in the cash market. All contractsentering and leaving the exchange have TMS records. If a contractre-enters the exchange before the delivery of service, TMS 508 includesa mechanism for processing the incoming certificate. Recordation andtitle to virtually all contracts are maintained as electronic mediathroughout their lifetime on the exchange. As discussed above, the cashmarket differs from the futures market in that a services futurescontract bought in the cash market is immediately reconciled by CH 506rather than at mark to market. Subsequent title recordation by TMS 508is immediately performed and recordation of title is immediatelytransmitted back to CH 506 thereafter.

A record of the last titleholder is transferred to delivery point 540and/or service provider 530 who performs the service as required by thecontract at delivery point 540. Delivery of the service requires aperson owning title to the service to present themselves to the serviceprovider in accordance with the terms of the contract. Usually thisrequires that the last owner of record in TMS 508 to presentidentification documents that are acceptable to service provider 530 atdelivery point 540 specified in the terms of the contract. If thecontract has been removed from the exchange prior to delivery by theissuance of a title certificate, it will be the responsibility ofservice provider 530 and the claimant (buyer 522) to trace the titlechain back to the TMS record. Various mechanisms exist for tracing,including, an endorsement sequence on the certificate itself, in amanner similar to that used by the banking industry for common checks.

In accordance with a preferred embodiment of the present invention,SerFEx 502 is organized as a for-profit enterprise. One advantageousorganizational entity is that of a corporation with a board of directorsrepresenting the interest of the shareholders. A management team isengaged as agents for the owners to operate the enterprise. It competeswith other financial concerns such as futures and equities exchanges,both organized and over the counter markets, for participation ofsuppliers, consumers, and speculators (the source of most of theliquidity that is available especially in futures markets). Like theprior art physical commodities exchanges, SerFEx 502 is subject toregulation by the Commodities Futures Trading Commission and in the caseof activities associated with options trading, would also be subject toSecurities and Exchange Commission oversight. The primary source ofrevenue for the exchange will be the collection of fair-market fees forthe services of the exchange. The exchange will not assume title to anycontracts that are traded on the exchange except as provided in CHprocedures for market clearing and arbitration purposes. The exchangewill be economically motivated to provide the lowest transaction costspossible, as doing so will increase the volume of trading activity,which in turn will increase the revenue earned by the exchange.

FIG. 6 is a flowchart depicting a method for processing servicescontract futures in accordance with a preferred embodiment of thepresent invention. The process is initiated by the receipt of an orderfrom an authorized intermediary (step 602). Prior to executing theorder, certain parameters must be understood, such as, the terms of theservice contract, price, the customer's identity, and the order type(order types include, but are not limited to, market, limit, contingent,contingency, stop, market-if-touched (MIT), alternative, and scale)(step 604). Next, the order database is searched for a match based onthe contract type, price, and the type of order (step 606). A check ismade as to whether any contracts in the database match the present order(step 608). If no matches are present a decision as to whether or not tocontinue the order is made (step 610). If the decision is made todiscontinue the order, the process immediately ends. On the other hand,if a decision is made to continue the order, the process again flows tostep 606 where the database is again searched. The process continues toloop around until a match is detected within the database at step 608.

The match is processed differently in futures or a cash market, so adetermination is made as to which market controls (step 612). A processfor determining if the order should be properly processed in a futuresor cash market is described below with respect to FIG. 10. If the orderis to be processed in a futures market, a recursive determination ismade as to whether it is the mark to market time (step 614). If not theprocess recursively returns to step 614 until mark to market time. Atthat time the contract is settled in the clearinghouse by transferringfunds from the buyer's account to the seller's account (step 616).Remember, from the perspective of the SerFEx, buyers and sellers are theauthorized intermediaries, not the actual buyer and seller of thecontract.

Returning to step 612, if a determination is made that the proper marketfor completing the trade is a cash market the process bypasses step 614for checking mark to market time because the order is to be clearedimmediately, rather than at mark to market time. Therefore, the contractis immediately settled in the clearinghouse by transferring funds fromthe buyer's account to the seller's account (step 616). The process isidentical for futures and cash market from this point forward. The buyeris then recorded as the new owner by the TMS (step 618).

Processing is essentially complete; however, accommodations forredeeming the service must be instituted. As discussed above, theservice provider must accept a properly endorsed transferablecertificate of title if one is issued, otherwise, the service providermust perform for the last identifiable person on the record of titlemaintained by the TMS. A determination is made as to whether acertificate of title has been issued to the buyer by the TMS (step 620).If so, the identity of the titleholder is conveyed to the serviceprovider (step 624). A certificate of title may be a transferableinstrument; therefore, the service provider is obligated to provideservice to the bearer of the certificate. However, the bearer may berequired to show a legitimate chain of ownership to the last record oftitle. The process then ends.

Returning to step 620, if no certificate is delivered, a determinationis made as to whether the buyer is the last titleholder of record (step622). The last record of title may simply be the person on the record ata specific time prior to delivery time. If the buyer is not the lastrecord of title the contract may be immediately returned to the databasefor storage or instead may merely exist in the TMS until the presentbuyer intends to sell the contract, at which time the contract will bereturned to the database and the process continues from step 606. If, onthe other hand, the sale makes the buyer the record of last title theTMS reports the identity of the last titleholder to the service provider(step 626) and the process ends.

FIG. 7 is a flowchart depicting a method for buying a services contractfutures in the SerFEx in accordance with a preferred embodiment of thepresent invention. The flowchart depicted in FIG. 7 is taken from theperspective of a prospective buyer. The process begins with theprospective buyer identifying the needed service, performance date andtime, delivery point, and the optimum price to bid on the service (step702). Funds are then transferred to the potential buyer's authorizedintermediary to cover the trade (step 704). It is, of course, envisionedthat the buyer and the buyer's authorized intermediary have an ongoingrelationship allowing the buyer to make the trade on credit, margin, orsettle the account at some predetermined point in the future. Next, abuyer's order for a services contract futures is placed with the buyer'sauthorized intermediary (step 706).

A check is made as to whether any contracts in the database match thebuy order (step 708). If no matches are present, a decision as towhether or not to continue the order at the present price is made (step710). If a decision is made to adjust the price, the order with the newprice is submitted to the authorized intermediary and the processreverts to step 706 where the database is again checked. The processiterates between steps 706-710 either until either the order is matchedor a decision is made to adjust the bid price, unless it is decided notto adjust the price at step 710. If, at step 710, a decision is made tonot adjust the bid price, a determination is made whether or not toadjust the order (step 712). The prospective buyer might change any ofthe contract parameters in order to increase the chances of a match. Forinstance, change the quantity, quality, date, and time, or deliverypoint to better position the order for a match. The new order is thenresubmitted to the authorized intermediary (step 706) where the databaseis again checked. Once again the process iterates between steps 706-710for adjusting the bid price and now also iterates between 706 and 712for adjusting the order. Assuming a decision is made not to eitheradjust the bid price or the order, a determination whether or not tocontinue the order is made (step 714). If a decision is made to continuethe order, the process returns to step 708 and the database is againchecked for a price match. The process then iterates between steps706-710 for adjusting the bid price, or between steps 706-712 foradjusting the order, or between steps 708-714 for continuing the order.If, at step 714, it is decided to discontinue the order the processends.

Returning to step 708, if and when a match between the bid price and theask price occurs, a determination is made as to which market controls(step 716). Normally, the buyer does not participate in thedetermination for processing the buy order as either a futures contractor a cash contract, however, the buyer should be aware that confirmationfrom the authorized intermediary depends on whether the buy order isprocessed in the cash or futures market. If the order is to be processedin a futures market, a recursive determination is made as to whether itis the mark to market time (step 718). If not, the process recursivelyreturns to step 718 until mark to market time. At that time the contractis settled in the clearinghouse by transferring funds from the buyer'saccount to the seller's account. The buyer is then notified by thebuyer's authorized intermediary of the settlement and the transfer offunds (step 720).

Returning to step 716, if a determination is made that the proper marketfor completing the trade is a cash market, the order is clearedimmediately. The contract is then immediately settled by in theclearinghouse and funds are transferred to cover the cost of the sale.The buyer is then notified by the buyer's authorized intermediary aboutthe settlement and the transfer of funds for the sale occurs (step 720).

Finally, the buyer may, at any time after the sale, request that the TMSdelivers a certificate of title, so a determination is made by the buyerwhether to request the certificate from the TMS (step 722). If the buyerdoes not request a certificate of title the process ends, however, ifthe buyer requests a certificate of title, the buyer will receive onefrom the TMS (step 724) and the process ends. Importantly, thecertificate of title may be a transferable instrument, therefore, if thebuyer requests a certificate of title and that certificate issubsequently lost or stolen, the buyer may be without a remedy forrecovery of the service.

FIG. 8 is a flowchart depicting a method for selling a services contractfutures in the SerFEx in accordance with a preferred embodiment of thepresent invention. The flowchart depicted in FIG. 8 is taken from theperspective of a service provider but is similar in most respects tothat of a prospective seller. The process begins with the serviceprovider identifying the service, grade, performance date and time,delivery point, and the optimum price to ask for the service (step 802).The service provider must then contract to provide the specified serviceat the date, time, and delivery point at the ask price (step 804). If aseller is initiating the order then the contract terms will have alreadybeen defined and the only parameter left to be determined will be priceso step 802 and 804 will be replaced by identifying an asking price forthe service futures contract. Next, an order is placed with anauthorized intermediary including identifying the contract and ask price(step 806).

Next, a check is made as to whether any bids in the database match theask price of the sell order (step 808). If no matches are present, adecision as to whether or not to continue the order at the present priceis made (step 810). If a decision is made to adjust the price, then anorder with an ask new price is submitted to the authorized intermediaryand the process reverts to step 806. The process iterates between steps806-810 either until the order is matched or a decision is made to againadjust the ask price, unless it is decided not to adjust the ask priceat step 810. If, at step 810, a decision is made not adjust the askprice, a determination is made whether or not to continue the order(step 812). If a decision is made to continue the order, the processreturns to step 808 and the database is again checked for a matchbetween the current ask price and bid prices in the database. Theprocess then iterates between steps 806-810 for adjusting the bid price,or between steps 808-812 for continuing the order. If, at step 812, itis decided to discontinue the order the process ends.

Returning to step 808, if and when a match occurs between the ask priceand bid price, then a determination is made as to which market controls(step 814). As discussed above, the buyer and seller do not normallyparticipate in the determination for processing the buy order as eithera futures contract or a cash contract, however the seller should beaware that confirmation from the authorized intermediary depends onwhether the sell order is processed in the cash or futures market. Ifthe order is to be processed in a futures market, a recursivedetermination is made as to whether it is the mark to market time (step816). If not, the process recursively returns to step 816 until mark tomarket time. At that time the contract is settled in the clearinghouseby transferring funds from the buyer's account to the seller's account.The seller is then notified by the seller's authorized intermediary ofthe settlement and the transfer of funds (step 818).

Returning to step 814, if a determination is made that the proper marketfor completing the trade is a cash market then the order is processedimmediately. The contract is then immediately settled in theclearinghouse and funds are transferred to seller's authorizedintermediary account. The seller is notified by the seller's authorizedintermediary about the settlement and the transfer of funds (step 818).

Finally, the buyer of the service may, at any time after the sale,request that the TMS deliver a certificate of title. Whether or not thebuyer requests a certificate does not matter to a typical seller who isnot also the service provider. However, if the seller is also theservice provider then the seller/service provider must have a mechanismto identify the rightful owner of the service contract. A serviceprovider will provide a service to the bearer of a certificate of title,if issued, or to a claimant who is of record of last title with the TMS.Therefore, a determination must be made by the seller whether the buyerhas requested the certificate from the TMS (step 820). If the buyerrequests a certificate of title the service provider receives aconfirmation from the TMS that a certificate was issued and possibly theidentity of the issue (step 822). The service provider must then performthe service at the specified date, time, and delivery point for anyvalid holder of the certificate of title (step 824). Alternatively, ifat step 820 a certificate is not issued, the service provider receivesthe identity of the last titleholder from the service contract recordfrom the TMS (step 826). In that case, the service provider is obligedto perform the service at the specified date, time, and delivery pointfor only a properly identifiable last title holder (step 828). Theprocess then ends.

FIGS. 9A and 9B are flowcharts depicting a process for selling royaltyescrow services contract futures in the SerFEx in accordance with apreferred embodiment of the present invention. The flowcharts depictedin FIGS. 9A and 9B are taken from the perspective of a service providerbut are similar in most respects to that of a prospective seller.Additionally, steps 902-928 are identical to steps 802-828 discussedwith respect to FIG. 8 above, with minor exceptions, and therefore onlythe difference will be addressed below.

The primary distinction between services contract futures and royaltyescrow service contract futures is the distribution of the proceeds fromthe first and final sale of the services contract. Royalty escrowservice contract futures are a special case of a service contract wherethe service provider who initiates the service contract may not be thesole provider of the service. One notable example is where a serviceprovider is the venue where an artist is under contract with the serviceprovider/venue to perform. There the service provider/venue will makeits revenue on the sale of services contract futures. The serviceprovider/venue may either hedge or speculate on the services contractfutures in order to increase its revenue and shift the risk, asdiscussed in detail above. However, the artisan cannot participate in aprice discovery process because the artisan's fees and royalty areusually contractually set. Therefore, if the right price for the servicecontract exceeds the price set in the contract with the serviceprovider/venue, the artisan looses royalty while the serviceprovider/venue can increase its share by participating in a pricediscovery process and speculating. The royalty escrow services contractfutures mechanism is designed to protect the property rights of serviceproviders such as artistic and sporting entertainment providers. Manycontracts between service provider/venues and artisans have revenuesharing terms in their present-day forward or cash contracts to ensurethat proceeds are distributed to the parties of the contract at the timeof sale. Prior art commodity contract futures have no such provision, sothe artisan is unprotected when the right price for the service exceedseither the forward contract price or the cash contract price.

Turning to FIGS. 9A and 9B, the process for selling royalty escrowservice contract futures is identical to the sale of basic servicescontract futures until the seller receives cash for the transaction andconfirmation of the sale from the authorized intermediary (step 918). Incase of escrowed royalty service contract futures, the first sellerand/or service provider will not receive the royalty. Royalty paymentsthat result from the sale of services contract futures are held inescrow until the artisan's service has been performed. The artisan'sroyalty is based on the final sale price of the service contract.Therefore, a determination is made as to whether the royalty escrowservice contract futures is resold (step 930). If the contract future isnot resold then the process proceeds to step 920 because the first saleis the final sale and the royalty has been computed and escrowed in step918. At step 920 the process then proceeds with determining the rightfulowner of the service contract.

Returning to step 930, TMS records show whether a service contract hasbeen resold. If the service contract has been resold the royalty amountfor the final selling price must be determined. First the final sellingprice is received from the TMS (step 932). Next, the additional royaltyis calculated (step 934). The additional royalty is derived by:Additional Royalty=[(Last Selling Price)−(Original SellingPrice)]×[Royalty Rate]

Finally, the artisan's additional royalty is placed in escrow with theCH until the artist performs on the contract with the service provider.The process then proceeds to step 920 and determines the rightful ownerof the service contract. In order to further safeguard the propertyrights of service providers entitled to royalties, the certificate oftitle, if issued, may be non-transferable.

Processing orders for services contract futures is normally performedevery twenty-four hours, at the mark to market time. At that time alloutstanding contracts are settled and the futures market is cleared.Commodities contracts are usually transferred to the cash market thebeginning of the trading day prior to the deliver date. In so doing,each commodity is trading in the cash market for approximately the sameduration. Throughout the description of the present invention, theSerFEx must determine whether a services contract order is to beprocessed in the futures market or in the cash market. Unlike physicalcommodities futures, which usually ripen on a monthly basis, servicescontract may ripen at any time of the day or night. Ideally, switching aservices contract from the futures market to the cash market shouldoccur at the same relative time for each service with respect to thatservices performance time. Therefore, rather than switching all ripeservice contracts at the same time, without regard to the time ofperformance, every service contract will be switched N hours from itstime to perform, or at its ripe time. Ripe service contracts are tradedin the cash market. Thus, services contracts will move from the futuresmarket to the cash market all hours of the day and night (rememberingthat trading takes place twenty-four hours a day and seven days a weekin the SerFEx). By switching service contract from one market to theother every N hours, each service contract spends approximately the samenumber of hours being traded in the cash market.

As discussed above, one important aspect of the SerFEx is the ability ofa potential buyer to bid on combinations of service contracts thatequate to a needed service. In the prior art physical commoditiesfutures exchanges, buyers have always had the ability to combinecontracts of different quantities, grades, delivery dates, and deliverypoints in order to acquire enough product to meet the buyer's needs.However, changing contract parameters often represents a trade-off forthe buyer that may lessen the potential profit derived from thecommodity. Therefore, if the buyer needs a specific grade and quantityof a particular commodity at a certain destination, then the buyer isforced to match the bid price to the asking price in order to be assuredof acquiring the needed commodity. Buyers of service contracts havealternative strategy, conjunctive orders.

A conjunctive order combines two or more dissimilar service contracts toform a needed service. Ideally, conjunctive orders do not sacrificegrade, quantity, performance date, or delivery point in order to acquirethe necessary service. Individually, the service contracts that comprisea conjunctive order is of no real value to the buyer unless the buyercan secure each service contract, that as a whole, provide the buyerwith the desired service. Therefore, an important tactic for acquiringeach of the separate services in the conjunctive order is to make eachservice order contingent on acquiring the other services that comprisethe conjunctive order. A contingent order ensures that the buyer willnot succeed in buying only unusable services.

FIG. 10 is a flowchart depicting a process implementing a conjunctiveservice contract order strategy. Initially, it is assumed that apotential buyer has outstanding bids on a service contract that is notmatched and the buyers must find an alternative to the contract (step1002). The buyer must then determine if a conjunctive service contractorder strategy is possible for the necessary service (step 1004).Certain services lend themselves to a conjunctive bidding strategy andothers do not. Examples of those that do not include health care, socialassistance, arts, entertainment, recreation, accommodation, and foodservice. Some services that easily adapt to a conjunctive biddingstrategy are transportation, warehousing, postal services, financial andinsurance; professional, scientific, and technical services. However,even if the service is particularly suited to conjunctive bidding, theindividual services necessary to complete the conjunctive order mightnot be present in the market. If a conjunctive order in not possible,the buyer is left with the decision of whether or not to change the bidprice (step 1006). Should the potential buyer not change the bid pricethe process ends, alternatively the potential buyer may reset the bidprice with the authorized intermediary (step 1008). The process thenends.

Returning the step 1004, if a conjunctive order is possible, thepotential buyer must then identify the best possible combinations ofservice orders that equate the present service contract order (step1010). From the possible conjunctive combinations the potential buyerthen places a contingency order for the conjunctive service contracts(step 1012). Clearly, the potential buyer would be worse off if some butnot all of the individual orders were match and bought while others werenot. Therefore, the potential buyer should make every order in theconjunctive combination contingent on every other order in thecombination.

It should be recognized that the conjunctive bidding strategy may be analternative to successfully bidding on a service contract in the market.More than one possible conjunctive combination of service contracts mayexist in the market that could supplement the primary conjunctive order(step 1014). If these services are in the market, the buyer may chooseto bid on other conjunctive combination of services (step 1012).Importantly, a second conjunctive bid is seen as an alternative strategyto the primary conjunctive bid, so these bids should be contingent oneach other's success as well as contingent on the failure of the primaryconjunctive order. Acquiring two conjunctive service contractcombinations is almost as bad as only acquiring some but not all of theindividual orders in the conjunctive order. Other possible conjunctiveorders may be identified and orders placed with the authorizedintermediary to cover those combinations (steps 1014 to 1012). At somepoint, either no other conjunctive combination exists or the potentialbuyer decides not to place the order, the process then ends.

FIG. 11 is a flowchart depicting a process for determining whether aservices contract should be traded in the futures market or the cashmarket. It is expected that this process may be performed by either thebid and ask order matching system (BAMS) or the clearinghouse (CH). Theprocess described below is invoked only after a bid and ask price matchhas occurred. The process begins by getting the current date and time(step 1102). Next, the date and time for performance of the servicecontract is acquired, usually from the contract itself (step 1104). Thetime interval between the current date and time, and the performancedate and time is then calculated and the time interval is compared to N(step 1106). Prior to making the comparison the time interval and N mustbe converted into the same unit of measure. N can be described in anyunit, but hours is the most convenient. N can also have any value;however, it must be remembered that the purpose of the cash market is toimmediately process ripe service contracts. Therefore, N equal tothirty-six hours is optimal.

Returning to step 1106, if the time interval is greater than N then thecontract is processed under futures rules (step 1110) and the processends. Alternatively, if the time interval is less than N, then thecontract is too ripe to be processed in the futures market and isprocessed under cash rules instead (step 1108) and the process ends.

In accordance with a preferred embodiment of the present invention,service contracts traded on the SerFEx are not forward contracts butfutures contracts. An important difference between forward and futurescontracts is that usually the owner of a forward contact may not sellthe acquired property right to the service. Normally, the serviceprovider is obligated only to the original owner of the forwardcontract. The owner of a forward contract must exercise the right or itis lost. Conversely, the owner of a futures contract may sell theproperty right to another who may either sell it again or demand thatthe service provider perform the service contract. The time and placefor the service provider to perform the contracted service is specifiedby the service contract itself. However, merely by being at theprescribed delivery point at the prerequisite time does not guaranteethat the service provider will perform on the contract. While theservice provider has made a contract to perform a service, the serviceprovider must be protected from fraudulent attempts to gain service.

FIG. 12 is a flowchart depicting a process for a service providerperforming on a service contract in accordance with a preferredembodiment of the present invention. The process begins with a demandermaking a claim for service at the specified date, time, and deliverypoint (step 1202). Next, the service provider must determine if theidentity of the last titleholder of record has been provided by the TMS(step 1204). If the service provider has been provided with the identityof last title holder then a check is made between the identity of thedemander and the identity of the last title holder of record (step1206). If the demander is verified as the last titleholder of record theservice provider must perform the contract service for the demander(step 1210). If, on the other hand, the identity of the demander cannotbe verified as the last title holder of record, then the serviceprovider must refuse service in lieu of providing the service for theproper demander (step 1208).

If the TMS has not provided the service provider with the identity ofthe last titleholder of record, then it is assumed that a certificate oftitle has been issued by the TMS. In practice, the TMS may notify theservice provider of the issuance of a certificate of title and/or theidentity of the last titleholder. In that case, the bearer of thecertificate of title would be the legitimate owner of the service. Theremay also be situations, although rare, where a certificate of title wasissued after the identity of the last titleholder was transmitted to theservice provider. In any case, it should be appreciated that the bearerof the certificate of title is the proper owner of the service contract.Of course, in this example, the service provider may perform for thelast titleholder of record only when presented with a demand for servicefrom a claimant bearing certificate of title.

Returning the step 1204, if the identity of the last titleholder has notbeen transmitted, the demander is requested to present a certificate oftitle in order to demonstrate ownership of the service (step 1212). Ifthe demander cannot produce the certificate, then the service providermust refuse service in lieu of providing the service for the properdemander (step 1208). Returning again the step 1212, if the demanderdoes bear the certificate it must be authenticated (step 1214).Normally, authentication would require the bearer to show that the TMSissued a certificate to the bearer, or possibly prove a chain ofownership to the original recipient of the certificate from the TMS. Itis understood that SerFEx rules ultimately define the steps necessaryfor a demander to authenticate a certificate of title. If the demandercannot authenticate the certificate to the satisfaction of the SerFEx,then the service provider must refuse service in lieu of providing theservice for the proper demander (step 1208). If the demander presents anauthentic certificate of title to the service provider, then the serviceprovider is obliged perform the contract service for the demander (step1210). The process then ends.

As can be seen from the forgoing, the SerFEx is an electronic marketsystem that enables the exchange of cash (spot and forward) contractsand futures contracts for the delivery of services. The exchange allowsthe futures market to determine the right price for services for theproducers and consumers of those service, which is heretofore unknown inthe art. Participants may buy, sell, or leverage services contractsthrough a variety of order types. Participants in the exchange may beproducers of services, intermediaries, speculators, and consumers of theservices. The exchange is a significant advancement over prior artexchanges by allowing the futures market to determine the right pricefor services for the producers and consumers of those services. Theexchange is composed of a novel electronic infrastructure that has fourmajor components: a front-end facility comprised of authorizedintermediaries, an automated bid/ask matching system, a clearinghousesystem, and a title management system. This infrastructure completelyeliminates the needed for open outcry price matching. Because theexchange is not based on the open outcry method of price matching, theexchange operates twenty-four hours per day and seven days per week. Aswith a prior art exchange, all futures accounts settled at least once inevery twenty-four hours and the market is cleared. However, the owner ofa service contract can take possession of a transferable title that canbe redeemed for service contract performance with the service provider.

It is important to note that, while the present invention has beendescribed in the context of a fully functioning data processing system,those of ordinary skill in the art will appreciate that the processes ofthe present invention are capable of being distributed in the form of acomputer readable medium of instructions and a variety of forms, andthat the present invention applies equally regardless of the particulartype of signal bearing media actually used to carry out thedistribution. Examples of computer readable media includerecordable-type media, such as floppy discs, hard disk drives, RAM, andCD-ROMs and transmission-type media, such as digital and analogcommunications links.

The description of the present invention has been presented for purposesof illustration and description but is not intended to be exhaustive orlimited to the invention in the form disclosed. Many modifications andvariations will be apparent to those of ordinary skill in the art. Theembodiment was chosen and described in order to best explain theprinciples of the invention and the practical application, and to enableothers of ordinary skill in the art to understand the invention forvarious embodiments with various modifications as are suited to theparticular use contemplated.

1. A computer program product for implementing a service contractfutures exchange, said computer program product comprising: a computerusable medium having computer useable program code embodied therewith,the computer usable program code comprising: computer usable programcode to receive a bid order for a service futures contract, wherein thebid order originates from a bidder; computer usable program code tomatch the bid order for a service futures contract with an ask order fora corresponding service futures contract, wherein an asker owns thecorresponding service futures contract and the ask order originates fromthe asker; and computer usable program code to transfer ownership of thecorresponding service futures contract to the bidder.
 2. The computerprogram product recited in claim 1, further comprising: computer usableprogram code to convey funds from the bidder to the asker.
 3. Thecomputer program product recited in claim 1, wherein the computer usableprogram code to match the bid order for a service futures contract withan ask order for a corresponding service futures contract furthercomprises computer usable program code to identify service futurescontract options for the service futures contract which is the subjectof the bid order from the bidder.
 4. The computer program productrecited in claim 1, wherein the bid order includes a bid price andfurther wherein the bid order identifies service futures contractoptions for the service order including at least one of servicequantity, service grade, service delivery date, and service deliverypoint.
 5. The computer program product recited in claim 1, wherein thecomputer usable program code to receive a bid order for a servicefutures contract further comprises computer usable program code toobtain the bid order from a bidder's authorized intermediary, whereinthe bidder's authorized intermediary represents the bidder.
 6. Thecomputer program product recited in claim 1, wherein the asker isrepresented by an asker's authorized intermediary.
 7. The computerprogram product recited in claim 1, wherein the computer usable programcode to match the bid order for a service futures contract with an askorder for a corresponding service futures contract further comprises:computer usable program code to identify service futures contractoptions for the service futures contract which is the subject of the bidorder from the bidder, wherein the service futures contract options forthe service order includes at least one of service quantity, servicegrade, service delivery date, and service delivery point; computerusable program code to search a plurality of available service futurescontracts for at least one corresponding service futures contract,wherein the corresponding service futures contract includes servicefutures contract options that correspond to the service futures contractwhich is the subject of the bid from the bidder; computer usable programcode to identify at least one corresponding service futures contractfrom the plurality of available service futures contract; computerusable program code to compare a bid price associated with the bid orderwith each ask price associated with each ask order for the identified atleast one corresponding service futures contract; and computer usableprogram code to identify at least one corresponding service futurescontract having a price match, wherein the ask price of the ask orderassociated with the at least one corresponding service futures contractis lower than or equal to the bid price associated with the bid order.8. The computer program product recited in claim 1, wherein the computerusable program code to convey funds from the bidder to the asker furthercomprises: computer usable program code to receive notification of aprice match between a bid order from a bidder and an ask order from anasker; computer usable program code to debit a bidder's authorizedintermediary; and crediting instructions for crediting an asker'sauthorized intermediary.
 9. The computer program product recited inclaim 8, wherein the computer usable program code to transfer ownershipof the corresponding service futures contract to the bidder furthercomprises: computer usable program code to receive notification of fundsbeing transferred from the bidder's authorized intermediary to theseller's authorized intermediary for the corresponding service futurescontract; computer usable program code to access a title record for thecorresponding service futures contract; and computer usable program codeto update the title record for the corresponding service futurescontract to reflect the bidder as the owner of the corresponding servicefutures contract.
 10. The computer program product recited in claim 1,further comprising: computer usable program code to issue a certificateof title to the bidder.
 11. A computer program product for implementinga service contract futures exchange, said computer program productcomprising: a computer usable medium having computer useable programcode embodied therewith, the computer usable program code comprising:computer usable program code to receive an ask order associated with anasker's service futures contract, wherein the ask order originates froman asker; computer usable program code to enter the ask order in aservice futures contract database containing a plurality of ask orders,each ask order associated with a service futures contract; computerusable program code to receive a bid order for a bidder's servicefutures contract; computer usable program code to search the servicefutures contract database on the basis of the bid order; computer usableprogram code to match the bid order to the ask order; and computerusable program code to record an ownership change of the asker's servicefutures contract.
 12. The computer program product recited in claim 11,wherein the ask order identifies the asker's service futures contract byat least one of service quantity, service grade, service delivery date,and service delivery point and further wherein the bid order includes anask price.
 13. The computer program product recited in claim 11, whereinthe computer usable program code to receive an ask order associated withan asker's service futures contract further comprises: computer usableprogram code to receive an asker's identity; computer usable programcode to an ask price from the ask order; computer usable program code toa description of the asker's service futures contract including at leaston of service quantity, service grade, service delivery date, andservice delivery point; and computer usable program code to a title tothe asker's service futures contract.
 14. The computer program productrecited in claim 11, further comprising: computer usable program code totransmit an identity of a last owner of record to the asker.
 15. Thecomputer program product recited in claim 11, wherein the computerusable program code to transfer ownership of the asker's service futurescontract to the bidder further comprises: computer usable program codeto issue a certificate of title to the bidder.
 16. The computer programproduct recited in claim 11, wherein the computer usable program code toreceive an ask order associated with an asker's service futures contractfurther comprises: computer usable program code to receive an asker'sidentity; computer usable program code to receive a royalty owner'sidentity; computer usable program code to receive an ask price from theask order; and computer usable program code to receive a description ofthe asker's service futures contract including a royalty fee.
 17. Thecomputer program product recited in claim 11, further comprising:computer usable program code to convey funds for the asker's servicefutures contract.
 18. The computer program product recited in claim 17,wherein the computer usable program code to convey funds for the asker'sservice futures contract further comprises: computer usable program codeto transfer funds from the bidder to the asker; and computer usableprogram code to escrow funds for a royalty owner based on a royalty fee.19. The computer program product recited in claim 11, furthercomprising: computer usable program code to transmit an identity of alast titleholder of record to the asker.
 20. The computer programproduct recited in claim 11, further comprising: computer usable programcode to issue a certificate of title to the bidder; and computer usableprogram code to transmit an identity of the bidder to the asker.
 21. Acomputer program product for implementing a service contract futuresexchange, said computer program product comprising: a computer usablemedium having computer useable program code embodied therewith, thecomputer usable program code comprising: computer usable program code toreceive an ask order for an asker's service futures contract; computerusable program code to receive a bid order for a bidder's servicefutures contract; computer usable program code to match the bid orderwith the ask order; computer usable program code to determine whether toprocess the asker's service futures contract is in a cash market or afutures market, in response to matching the bid order with the askorder; and computer usable program code to process the asker's servicefutures contract based on whether the asker's service futures contractis processed in a cash market or a futures market.
 22. The computerprogram product recited in claim 21, wherein the asker's service futurescontract is a transferable contract to provide a service relating to atleast one of construction; transportation and warehousing; postalservices; information; real estate and rental and leasing; financial andinsurance; professional, scientific, and technical services; managementof companies and enterprises; administrative and support and wastemanagement and remediation services; educational services; health careand social assistance; arts, entertainment, and recreation;accommodation and food services; public administration; and otherservices.
 23. The computer program product recited in claim 21, whereinthe computer usable program code to process the asker's service futurescontract, in response to the determination to process the asker'sservice futures contract in a cash market further comprises: computerusable program code to transfer funds from the bidder to the asker; andcomputer usable program code to transfer ownership of the asker'sservice futures contract to the bidder following transferring funds fromthe bidder to the asker.
 24. The computer program product recited inclaim 21, wherein the computer usable program code to process theasker's service futures contract in response to the determination toprocess the asker's service futures contract in a futures market furthercomprises: computer usable program code to calculate mark to markettime, wherein all futures service futures contracts are processed atmark to market time; computer usable program code to determine whetherpresent time is equal to mark to market time; computer usable programcode to transfer funds from the bidder to the asker on the basis ofpresent time being equal to mark to market time; and computer usableprogram code to transfer ownership of the asker's service futurescontract to the bidder in response to transferring funds from the bidderto the asker.
 25. The computer program product recited in claim 21,wherein the computer usable program code to determine whether to processthe asker's service futures contract is in a cash market or a futuresmarket further comprises: computer usable program code to get a ripetime value for the asker's service-futures contract, wherein the ripetime value is an amount of time prior to service delivery time and datethat the asker's service futures contract must be processed in a cashmarket; computer usable program code to determine a performance timevalue, wherein the performance time value is the amount of time from thepresent time until service delivery time and date of the asker's servicefutures contract; computer usable program code to compare theperformance time value with the ripe time value for the asker'scontract, wherein the asker's service futures contract is processed in afutures market only if the performance time value is greater than theripe time value, otherwise the askers contract is processed in a cashmarket.
 26. A computer program product for implementing a servicecontract futures exchange, said computer program product comprising: acomputer usable medium having computer useable program code embodiedtherewith, the computer usable program code comprising: computer usableprogram code to receive an ask order from an asker for an asker'sservice futures contract; computer usable program code to receive a bidorder from a bidder for a bidder's contract; computer usable programcode to receive the bid order with the ask order; computer usableprogram code to transfer funds from the bidder to the asker in responseto matching the bid order with the ask order; and computer usableprogram code to transfer ownership of the asker's service futurescontract to the bidder in response to transferring funds from the bidderto the asker.
 27. The computer program product recited in claim 26,wherein the bidder is the first bidder, the bid order is the first bidorder, the ask order is the first ask order, the bidder's contract is afirst bidder's contract and the computer program product furthercomprises: computer usable program code to receive a second ask orderfrom the bidder for the asker's service futures contract; computerusable program code to receive a second bid order from a second bidderfor a second bidder's contract; computer usable program code to matchthe second bid order bid order with the second ask order; computerusable program code to transfer funds from the second bidder to thefirst bidder in response to matching the second bid order with thesecond ask order; and computer usable program code to transfer ownershipof the asker's service futures contract to the second bidder in responseto transferring funds from the second bidder to the bidder.
 28. Thecomputer program product recited in claim 27, wherein the computerusable program code to receive an ask order and receiving a bid orderfurther comprise electronically telecommunicating the respective bid andask orders.
 29. The computer program product recited in claim 27,wherein the computer usable program code to receive an ask order andreceiving a bid order further comprise orally communicating therespective bid and ask orders.
 30. The computer program product recitedin claim 27, wherein the computer usable program code to match the bidorder with the ask order is performed orally using open outcry oralbargaining.
 31. The computer program product recited in claim 27,wherein the computer usable program code to match the bid order with theask order is performed electronically.
 32. The computer program productrecited in claim 27, wherein the computer usable program code to receivean ask order from an asker is performed electronically by an asker'sauthorized intermediary and further wherein matching the bid order withthe ask order is performed orally using open outcry oral bargaining. 33.A computer program product for implementing a service contract futuresexchange, said computer program product comprising: a computer usablemedium having computer useable program code embodied therewith, thecomputer usable program code comprising: computer usable program code totransmit an ask order for an asker's service futures contract, whereinthe ask order identifies an asker's service futures contract by at leastone of service quantity, service grade, service delivery date, andservice delivery point and further wherein the ask order includes andask price; computer usable program code to receive an indication that abid price associated with a bid order from a bidder has matched the askprice; and computer usable program code to receive sales funds forownership of the asker's service futures contract, wherein the salesfunds are equal in amount to the ask price.
 34. The computer programproduct recited in claim 33, wherein the asker's service futurescontract is a transferable instrument promising to provide a service ata future service delivery date and remote service delivery point. 35.The computer program product recited in claim 33, further comprising:computer usable program code to escrow royalty funds for a royaltyowner, wherein the royalty funds are equal in amount to a royalty fee.36. The computer program product recited in claim 33, furthercomprising: computer usable program code to receive information as to anidentity of the bidder; computer usable program code to receive a demandfor service from a demander; computer usable program code to identifythe demander; computer usable program code to confirm the demander'sidentity matches the identity of the bidder; and computer usable programcode to perform a service for the demander.
 37. The computer programproduct recited in claim 34, further comprising: computer usable programcode to receive a notification of an issuance of an asker's servicefutures contract certificate of title, wherein the asker's servicefutures contract certificate of title is one of a transferableinstrument and a nontransferable instrument; computer usable programcode to receive a demand for service from a demander, wherein thedemander bears a certificate of title; computer usable program code toauthenticate the certificate of title as the asker's service futurescontract certificate of title; and computer usable program code toperform a service for the demander.
 38. The computer program productrecited in claim 34, further comprising: computer usable program code togenerate a second bid order for seller's service futures contract ownedby the bidder, wherein the second bid order includes a second bid price;computer usable program code to receive a notification the second bidorder matched an ask order for the asker's service futures contract; andcomputer usable program code to make available second sales funds forownership of the asker's service futures contract, wherein the secondsales funds are equal in amount to a second ask price.
 39. A computerprogram product for implementing a service contract futures exchange,said computer program product comprising: a computer usable mediumhaving computer useable program code embodied therewith, the computerusable program code comprising: computer usable program code to generatean ask order, wherein the ask order is for an asker's service futurescontract and further wherein the ask order identifies an asker's servicefutures contract by at least one of service quantity, service grade,service delivery date, and service delivery point and the ask orderincludes an ask price and a royalty fee amount; computer usable programcode to receive an indication that a bid price associated with a bidorder from a bidder has matched the ask price; and computer usableprogram code to receive sales funds for ownership of the asker's servicefutures contract, wherein the sales funds are equal in amount to the askprice less the royalty fee.
 40. A computer program product forimplementing a service contract futures exchange, said computer programproduct comprising: a computer usable medium having computer useableprogram code embodied therewith, the computer usable program codecomprising: computer usable program code to transmit a bid order for abidder's service futures contract, wherein the bid order identifies abidder's service futures contract by at least one of service quantity,service grade, service delivery date, and service delivery point andfurther wherein the bid order includes a bid price; computer usableprogram code to receive an indication that an ask price associated withan ask order for an asker's service futures contract from an asker hasmatched the bid price; and computer usable program code to transferfunds for ownership of the asker's service futures contract, wherein thefunds are equal in amount to the bid price.
 41. The computer programproduct recited in claim 40, further comprising: computer usable programcode to receive an indication of ownership of the asker's servicefutures contract.
 42. The computer program product recited in claim 40,further comprising: computer usable program code to receive acertificate of title for the asker's service futures contract, whereinthe asker's service futures contract certificate of title is one of atransferable instrument entitling a bearer of the certificate of titleto the asker's service upon demand.
 43. A computer program product forimplementing a service contract futures exchange, said computer programproduct comprising: a computer usable medium having computer useableprogram code embodied therewith, the computer usable program codecomprising: computer usable program code to transmit a conjunctive bidorder, wherein the conjunctive bid order identifies at least twodissimilar service futures contract is to form the conjunctive serviceand further each service futures contract identifies at least one ofservice quantity, service grade, service delivery date, and servicedelivery point and further wherein the conjunctive bid order includes aconjunctive bid price comprising a separate bid price for each servicefutures contract; computer usable program code to receive an indicationthat a first ask price associated with a first ask order for a firstseller's service futures contract from a first seller has matched onebid price from the conjunctive order; computer usable program code toreceive an indication that a last ask price associated with a last askorder for a last seller's service futures contract from a last sellerhas matched a last bid price from the conjunctive order, therebycompletely matching the conjunctive bid order; and computer usableprogram code to transfer funds for ownership of the first seller'sservice futures contract and the last seller's service futures contract,wherein the funds are equal in amount to the conjunctive bid price. 44.A computer program product for implementing a service contract futuresexchange, said computer program product comprising: a computer usablemedium having computer useable program code embodied therewith, thecomputer usable program code comprising: computer usable program code toreceive at least one bid order and at least one ask order for a servicefutures contract, wherein the service futures contract is a transferablecontract to provide a service relating to at least one of construction;transportation and warehousing; postal services; information; realestate and rental and leasing; financial and insurance; professional,scientific, and technical services; management of companies andenterprises; administrative and support and waste management andremediation services; educational services; health care and socialassistance; arts, entertainment, and recreation; accommodation and foodservices; public administration; and other services; and computer usableprogram code to match the at least one bid order to the at least one askorder for a service futures contract, wherein a basis for matching is aprice for the service futures contract.